AMD Makes Profit on Top of Console Sales in Q4, But PC Biz Struggles

By Jeffrey Burt  |  Posted 2014-01-21

AMD Makes Profit on Top of Console Sales in Q4, But PC Biz Struggles

Advanced Micro Devices was profitable for the second consecutive quarter, thanks in large part to the success of the gaming consoles from Microsoft and Sony that are powered by the vendor's chips.

Now AMD officials are predicting full-year revenue growth and profitability for 2014, which will mean having to negotiate through the minefield that is the global PC market, handling a seasonal slowdown in console sales following a hot holiday market and growing out other parts of their business.

Midway through a multi-year turnaround effort, AMD is set up well to do just that, according to President and CEO Rory Read.

"In 2014, our next objective is to achieve revenue growth and profitability at the net income level for the full year, as we leverage our differentiated IP and products to further expand our growth businesses, participate across a broader part of the traditional PC market, to create a more balanced and consistent revenue stream and to continue to pursue efficiencies in our business model that will further reduce operating expenses," Read said during a conference call with analysts and journalists Jan. 21 to discuss fourth-quarter financial numbers.

The quarter was characterized by a significant revenue bump in the gaming console space, even as worldwide PC sales continued to slow. However, AMD for more than a year has been working to diversify its portfolio and reduce its dependency on the traditional PC space, looking to extend its reach into such areas as ultra-portable devices, ultra-dense servers and the embedded market. The company also is growing its graphics and semicustom market, the latter of which builds chips being used in the Microsoft's Xbox One and Sony's new PlayStation consoles.

The embedded and semi-custom businesses in the fourth quarter accounted for more than 20 percent of all of AMD's revenues, hitting a goal Read had set. The company also is on target to have all of the new growth businesses make up more than 50 percent of revenues by the end of 2015, the CEO said.

In the fourth quarter, AMD's revenues hit $1.59 billion, a 38 percent increase over the same period in 2012. Income came in at $89 million. For all of 2013, AMD generated $5.3 billion in revenues and lost $83 million.

For the current quarter, revenues are forecast to fall 16 percent compared to the fourth quarter, according to Devinder Kumar, senior vice president and CFO at AMD.

Read and other executives highlighted what the semi-custom unit was able to do with the gaming consoles, not only in creating chips that Microsoft and Sony embraced, but then also to keep up with demand during the holiday season.

"Combined, Sony and Microsoft reported selling more than 7 million units in less than two months," Read said. "This is more than double the number of prior generation consoles sold in their first quarter of introduction. We expect this momentum will continue as we increase game console SOC [system-on-a-chip] shipments for the year and pursue new wins from our semi-custom design pipeline."

AMD Makes Profit on Top of Console Sales in Q4, But PC Biz Struggles

However, the vendor's Computing Solutions unit saw fourth-quarter revenues fall 13 percent over the same period in 2012, with executives pointing to the overall declines in PC shipments. The group lost $7 million in the quarter.

Read said he expects the PC market to see another 10 percent decline in sales in 2014, in line with expectations from Gartner and IDC analysts. However, within that market, AMD will look to expand its reach into areas where it doesn't have a strong presence, executives said. The company launched the desktop version of its new "Kaveri" accelerated processing unit (APU) in December—with the mobile version coming this year—and also has the low-power "Mullins" and "Beema" APUs on tap for later in 2014.

The new chips stack up well against Intel's low-power Atom "Bay Trail" offerings in both graphics and CPU performance, according to Lisa Su, senior vice president and general manager of AMD's global business units.

"I think we feel very good about our positioning versus Bay Trail," Su said during the call. "We’re continuing to be very aggressive with how we position our products in the space, and we will look for a balanced business going forward there."

Read said AMD has always been strong in the entry-level consumer notebook space, a market hardest hit by the rising popularity in tablets. However, the desktop space and commercial PC market should be areas where the company can grow, he said.

"These are two key areas where we can provide leadership and we have been underrepresented in the past," Read said. "These will give us an opportunity to expand and they’re also areas that tend to have better growth performance than consumer notebook, because clearly consumer notebook in the entry space has been affected by the tablet. But that commercial area in desktop has been stronger and more resilient. We think that, as we mix up the stack, will continue to give us opportunity to produce profitability."

AMD also is gearing up for the release this year of its first 64-bit SoCs based on the ARM architecture, which initially will be used in ultra-dense servers but also will find its way into other systems and embedded devices, according to Read.

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